Democratic Socialism and the Market Economy by lht19038


									    Social Consensus, Democratic Socialism and the Market Economy

                                       - Norman Girvan –

      Paper delivered at the PNP 60th Anniversary Symposium, Kingston,
                              September 17,19981

      I.       Growth with equity and social justice: the need for social consensus

The fundamental problem facing Jamaica today is how to simultaneously achieve
sustained economic growth with equity and social justice. The four decades since
Independence have shown the problems that arise when economic goals are pursued at
the expense of social objectives, and vice versa. In the 1960s economic growth was high,
but unemployment grew, inequality widened, and social and economic exclusion
increased. Social problems were addressed in the 1970s, but disinvestment and capital
flight occurred, leading to negative growth and falling living standards.

In the 1980s and 1990s economic recovery has been erratic and uneven. The social
infrastructure has deteriorated, and there is a widespread sense that inequality and social
exclusion have increased. The present conjuncture is thought by many to bear strong
resemblance to the situation at the end of the 1960s.

In democratic market-economy societies like Jamaica, there is an “Iron Law” relating to
the circularity of economic and social progress. It can be summarised as follows.
Economic growth that is accompanied by widening inequality and/or deteriorating social
conditions results in rising social discontent and political disaffection. Ultimately, this
reduces investor confidence in political stability, deters investment, and reduces growth.
But if social objectives are pursued in ways that reduce investible surpluses and hurt
investor confidence, this will also restrict economic growth and hence reduce the level of
resources available to fund social progress. The ideal is a “virtuous circle” in which
growth in living standards and in social conditions translates into improved labour
productivity, higher levels of worker satisfaction, and increased competitiveness, which
are good for investment and growth.

The trick is to put in place a package of economic and social policies in which high levels
of productive investment are achieved in a manner consistent with steady improvement in
the social conditions and living standards of the majority. This is a challenge of political,
social and economic engineering. Specifically in Jamaica, I argue that what is required is
a broad social consensus on goals for the society and on the principal means by which
these goals are to be achieved.

 Slightly revised. Due to limitations of time this paper has no references to sources, though these can be
supplied if necessary. I am grateful to Professor Kari Polanyi Levitt for her helpful comments on the first
draft, and to Judith Wedderburn for her input on the section on Civil Society.

The need for this arises out of two inter-related factors. First, given the deep class, colour,
racial and political divisions in our society, failure to agree on basic set of core values to
which everyone subscribes results in continuing contention over fundamentals. This
reinforces historically derived distrust among the principal social agents. The result is to
undermine investor confidence on the one hand and social stability on the other, both of
which are essential to sustained economic growth. A social consensus will provide the
framework for establishing trust and co-operation amongst the social partners and for
promoting socially constructive behaviour.

Secondly, the five-year electoral cycle and the highly competitive political culture in
Jamaica have imparted a volatile character to economic and social policy, undermining
long-term consistency and coherence. This will be moderated by broad bipartisan and
multi-partisan agreement among the major political parties.

Here, it should be recalled that one of the lessons of East Asian economic success (their
present difficulties notwithstanding) is the consistency of economic and social policies
followed over decades. The policies were characterised by high rates of saving and of
investment in productive industry and agriculture, strong investment in human capital
especially education, progressive social reforms in areas like land ownership (although
labour rights were frequently trampled on), and prudent fiscal management. The fact that
long-term policy consistency was often achieved by resort to politically authoritarian
means, merely underscores the necessity for social consensus in the Jamaican context.

Another useful lesson can be learnt from the history of the developed countries
themselves. It has been shown that sustained reduction of poverty in these countries was
achieved only after this goal received high political priority because the ruling elites
recognised that this was in the interest of their own long-term survival and prosperity. As
a result these elites supported social reforms and levels of taxation aimed at reducing and
eliminating poverty. One purpose of a social consensus in Jamaica is to secure the
commitment of business elites and the professional classes for poverty reduction and
social progress, without provoking panic capital flight and migration, as in the 1970s.

Nearer home, there is the example of Barbados. Barbados has an enviable record in
economic growth and social progress over the past three decades. It consistently tops
developing countries in the United Nations measure of human development. Government,
capital and labour in Barbados are united around the goal of maintaining the parity of the
Barbados dollar and maintaining cost/price competitiveness. They have contracted to
moderate price and wage behaviour, and to adopt fiscal management, in furtherance of
this goal. Barbados’s history is somewhat different from Jamaica’s. Its business class has
deep historical roots in the society, unlike Jamaica where the absentee and immigrant
elements have historically been stronger. The planter class has a history of supporting
education for the black population that goes back to the 19th century. They have
successfully accommodated to black political power in the 20th century. The level of
discourse among the political parties is notably higher in Barbados than in Jamaica.
These differences are themselves suggestive of lessons that Jamaica can learn from the
Barbados experience.

                          II.     Elements of a social consensus

 A social consensus is not the same as a Social Contract. A social consensus precedes a
Social Contract: it provides the context of shared values on goals and means within which
negotiations by the social partners can take place. Where a Social Contract is about
agreement on specifics, a social consensus is about “climate”, and general principles. It
may be easier to tell when we don’t have a social consensus, than to say with certainty
when we do have it. One sign of its existence is when the stated positions of leaders of a
wide cross-section of social agents—political parties, business, labour, the Church, and
citizen’s organisations--begin to show significant points of convergence on basic goals
and strategies for the society as a whole (or if you like, when the points of convergence
are more significant than the points of divergence.)

Second, I am not idealistically proposing that it is possible to end political rivalry, or to
eliminate greedy, self-interested and short-sighted behaviour by social and economic
actors. It is no more possible to do this than it is to alter human nature. I am arguing for a
social consensus as a kind of “framework of minimum agreement” within which political
competition and the pursuit of individual and social self-interest take place. Quite simply,
if this is not possible then I believe that Jamaica has no future.

There is no ready-made formula for how a social consensus might be established in
Jamaica. The lead might come from the government, but not necessarily. It might come
from the political parties, or from private sector leaders, or from the labour leaders. It
might also come from leaders of civil society, who are perceived as not having “axes to
grind”. It might come from the media. And it might emerge almost imperceptibly, from a
growing sense of impending doom.

What then might be the principal elements of a social consensus in Jamaica? For a start,
reference can usefully be made to the United Nations Universal Declaration of Human
Rights, and the related International Covenants on Economic, Social and Cultural Rights,
and on Civil and Political Rights. Together with subsequent international declarations
including those on Women and on Children, the Charter from the World Social Summit,
and the Charter of Civil Society for Caricom: the People's Charter, these provide a set of
universal and regional principles of a non-partisan nature on which all Jamaicans can
surely agree.

Among the rights of citizens entrenched by these declarations are:- the right to food,
clothing, and shelter; the right to employment, education and health care; the right to a
clean environment, cultural integrity and quality public services; the right to fair wages,
collective bargaining and the formation of labour unions; and the right to participate in
decisions affecting these rights. A thorough study of these documents would yield many
suggestions for the principal goals of our society for the next 10-20 years.

Within this framework we might attempt to list some of the key issues for a social
consensus to address. For clarity, I have listed these in terms of rights and responsibilities
of government, the private sector, labour, and civil society.

A. Government
The role of Government
 The main responsibility of Government is to ensure the adequate and efficient
   provision of basic services to the entire community, and to promote and properly
   regulate productive activity in the public interest.
 Government will not seek to own and directly operate productive enterprises itself,
   except where there is broad support for this to be undertaken in the public interest. In
   such cases Government has a responsibility to ensure that these enterprises are run in
   an efficient, publicly accountable and transparent manner.
 In privatising existing government-owned enterprises, government has a duty to
   ensure that the interests of the public, as shareholder and as consumer, are adequately
   protected. It is better to wait to ensure that these interests are satisfactorily protected
   than to privatise in haste in the name of an abstract principle.
Public and social services
 Public expenditure will concentrate on the efficient delivery of education, health,
   basic economic infrastructure, security and justice services.
 Public expenditure will be free of corruption, waste and mismanagement. Effective,
   credible and transparent systems must exist to ensure maximum compliance with
   these principles. Especially, the award of contracts through political connections and
   the use of public funds as a tool of political patronage undermines the efficiency with
   which tax dollars are used and hence legitimises tax evasion in the eyes of the
   citizenry, and should be illegal.
 Publicly funded education should concentrate on primary and secondary education
   with the principle of universal access. Similarly, public health should prioritise
   primary health care with a commitment to universal access.
 Adequate shelter should be recognised as a basic right of every Jamaican citizen and a
   responsibility of the entire society. Government, the private sector and citizens groups
   will work together to accomplish this.
 The provision of Government services must be free of class bias and observe the
   principle of equitable treatment of all citizens. This needs to be urgently addressed in
   the areas of security and justice, transport, public utilities, and physical infrastructure
   including roads, drainage, and sewage and garbage disposal.
 Government and the private sector will accept a joint responsibility to work together
   to restructure the internal public debt in order to release resources to build up the
   human capital and physical infrastructure of the society.
Macroeconomic policy
 Essential elements of the macroeconomic framework will be (I) low fiscal deficits
   (kept within specified limits as a proportion of the GDP); (ii) strict limits on BoJ
   lending to Government, (iii) low inflation (single-digit or at least not exceeding
   inflation in the main trading partners), (iv) low real interest rates (not exceeding 5%
   for the productive sector), and (v) a stable exchange rate.

Industrial policy
 The preferred means for achieving competitiveness in international markets will be
   (I) labour and management efficiency, (ii) product innovation, including research and
   development, and (iii) product quality, including efficiency of service delivery.
   Government, business and labour will adapt their polices towards achieving this end.
 An Industrial Policy or Strategy, in which both political parties, business and labour
   agree on the industries and industrial clusters which will be the basis of Jamaica’s
   efforts to develop competitive advantages in international markets, is both necessary
   and desirable.

B. The private sector
 The principal role and responsibility of the private sector is to engage in productive,
   long-term investment and to operate productive activity efficiently, in the expectation
   of reasonable and secure returns to their investment and for their effort.
 The private sector also recognises a social responsibility to their employees and
   consumers. Labour practices will be in accordance with the law and enlightened
   labour practices. In particular, employers recognise the desirability of supporting
   worker training and education as means of facilitating improved productivity and
   worker advancement, and of supporting the transport and housing needs of their
   employees where resources permit.
 In operating their businesses and fulfilling their social responsibilities, the private
   sector has a right to expect that Government will fulfil its responsibility to provide an
   appropriate and stable macroeconomic environment as set out above, and that labour
   will fulfil its responsibility to cooperate in the creation of a climate of stable and
   predictable industrial relations.
 In view of the damage done by previous cycles of devaluation and inflation, the
   private sector will endeavour to eschew short-term speculative activity, especially
   speculation in foreign currency.

C. Labour
 Employees are entitled to the basic rights guaranteed under the Universal Declaration
   and related international covenants. They are entitled to dignified and secure
   employment with reasonable remuneration and decent working conditions, to join the
   union of their choice, and to exercise the rights of collective bargaining.
 Employees have a responsibility to provide a fair day’s work for a fair day’s pay, and
   to cooperate actively in strategies and schemes to raise productivity and improve
   competitiveness in the enterprises in which they are employed.
 Employees understand that increases in real wages can occur only to the extent of
   productivity increases, in order to play their part in maintaining exchange rate
   stability, maintaining international competitiveness, and facilitating the growth of
   living standards.
 Trade Unions have a duty to educate their members on their rights and
   responsibilities, and to facilitate a climate of harmonious industrial relations within
   the context of their responsibilities as Unions.

D. Civil Society

   Organisations of civil society include the Church, development NGOs, service clubs,
    citizens and community associations, and voluntary social service organisations. They
    are recognised as integral elements of the structure of governance, as vehicles of
    empowerment and participation of ordinary citizens in the decisions that affect them,
    and as mean of mobilising voluntary resources for community and national

   To this end organisations of civil society will form networks to articulate the needs
    and concerns of communities and of vulnerable and disadvantaged groups, and to
    work with government and the private sector in the design and implementation of
    programmes directly benefiting these sectors of the population. It is recognised that
    services provided through voluntary organisations will complement, but will not be
    expected to substitute for, government provided social services.

   Organisations of civil society will also promote dialogue across different sectors in
    the population, including women, youth, urban and rural groups, with the other social
    partners with the aim of developing a social consensus supportive of equitable and
    sustainable development.

   Organisations of civil society have a responsibility to conduct their affairs in a
    manner consistent with the principles of democracy, transparency and accountability,
    to develop and maintain genuine partnerships with communities and other beneficiary
    groups, and to engage in regular evaluation of their internal processes and their

                  III. Democratic socialism and the market economy

We may now consider this topic within the wider context set out above. One reason for
not starting with it is that both “Democratic Socialism” and the “Market Economy” carry
an ideological baggage which renders such discussions extremely divisive in the
Jamaican context. Hence posing the issues in these terms may make difficult the kind of
social consensus that is so urgently needed.

Nonetheless it is recognised that, as a Democratic Socialist party, the PNP will need to
reconcile its present and future policies with its stated principles and objectives as well as
with its historical tradition. Further, the pervasive influence of the globalisation discourse
and of its underlying neo-liberal ideology make it necessary to relate the recommended
approach to established ideological currents.

We may begin by observing that the proposed approach implies the social management
of the market economy by means of consensus among the principal social partners. To
that extent it is a clear departure from the principles of laissez-faire economy and society.
It is also is consistent with the basic tenets of the socialist creed. However this model
does not conform to any specific, identifiable, brand of socialism. Here, a discussion of
Democratic Socialism, Revolutionary Socialism, the Market, and the PNP, may be useful.

 A common definition of “Socialism” would be a system of society in which the means
of production are under social ownership and control and used for the benefit of the entire
population, more particularly for the working people, regarded as the true source of all
wealth. “Democracy”, for its part, is commonly defined as a system of government that is
of the people, by the people, and for the people. Hence on the face of it, socialism is
merely the extension of the principles of democracy to the sphere of the economy.

Why then was it ever necessary to specify “democratic” socialism? The answer to this is
historical. In Western Europe, Democratic Socialism emerged in contradistinction to
socialism of the Marxist-Leninist variety, in a word, communism. It implied that
socialism would be practised in the context of a mixed economy with state control over
basic industries (the so-called “commanding heights”), rather than take the form of a
centrally-planned economy with an all-embracing state sector. And the political context
would be one wherein socialist parties competed openly for power within plural political
systems and parliamentary institutions. For this reason, most parties of the Left in
Western Europe called themselves “Social Democratic” rather than socialist.

In Third World countries like Jamaica, Democratic Socialism was distinguished from the
“revolutionary” socialism of countries like China, Cuba and to some extent Tanzania.
There, national liberation movements monopolised political power and the practice of
democracy was restricted to the internal processes of the ruling Party.

The PNP’s socialism has always been predominantly of the Social Democratic variety
rather the revolutionary or Marxist-Leninist variety. (This is merely an observation and
does not imply a value-judgement one way or another.) The historical record also
suggests that the PNP’s socialism has been instrumentalist rather than philosophical in its
ideological orientation, and pragmatic rather than dogmatic in its governmental practice.

Instrumentalist, because the PNP was formed as a nationalist movement rather than as a
socialist party. In other words socialism was initially adopted as the chosen instrument of
national development, but it was a means to an end, not the end in itself. By the 1950s
foreign capital, rather than state ownership, came to be seen as the logical source of
industrialisation because of the resource limitations of a small and backward economy.
The statist element of socialism, which had originated with the influence of the British
Labour Party and of the Marxist Left in the early PNP, was jettisoned. Its revival in the
1970s in the form of Democratic Socialism was due principally to disaffection with the
role of foreign capital which had emerged towards the end of the 1960s. There was also
the influence of Third World revolutionary socialism through the Non-Aligned
Movement and the close relations developed with states like Cuba and Tanzania.

But the Party never changed its fundamentally social-democratic nature and orientation.
In my work on the PNP’s Appraisal Committee set up to investigate the causes of the
1980 electoral defeat, I suggested that the Party’s problems were attributable, at least in
part, to a peculiar syndrome of “double misperception”. I distinguished three kinds of
parties of the Left which the PNP could have been. The first, a Social Democratic Party,

was what the PNP actually was. The second, a National Liberation Movement of the
Third World type, was what the PNP had increasingly come to perceive itself as and to
behave like, at least rhetorically. This had become its “self-image”. The third, a
Communist (i.e. Marxist-Leninist vanguard) Party, was what the PNP had come to be
perceived to be, and depicted as, by its political opponents. This had become its “external
image”. The result was an unusually high level of ideological and behavioural confusion
within and outside of the Party. This crippled the effectiveness of the Government in
managing the economy and of the Party in managing its political tasks. To make matters
worse, it provided devastating ammunition to its opponents.

In any case by the 1980s the Party was to be swept up in the wave of neo-liberal thinking
which proclaimed that true economic democracy is to be found in the free operation of
the market. According to this doctrine, which goes all the way back to Adam Smith, state
intervention in the public interest is inherently doomed to failure. First, because no set of
government bureaucrats can ever have as much as much knowledge of economic
conditions as do thousands of consumers and producers pursuing their own self-interest
in responding to costs and prices in freely operating markets. Second, because the
bureaucrats themselves, in making and implementing public decisions, inevitably pursue
their own self-interest, seeking to maximise the “rents” accruing from their individual
access to power.

The doctrine derived much of its appeal from its evident correspondence with real
experience in many parts of the world. Keynesian-type government intervention in the
North had lost its effectiveness in the treatment of stagflation in the developed industrial
countries. Development planning in the South had proven ineffective in the face of the
mounting debt problem. Corruption by state officials could be found everywhere. It
remained only for the political ascendancy of Margaret Thatcher and Ronald Reagan, and
the leverage over developing countries acquired by the IMF, the World Bank, and the
U.S. Treasury as a result of the debt crisis, for the “Washington Consensus” to be
established as the cornerstone of sound economic management. By the end of the 1980s
Michael Manley had arrived at the conclusion that “socialism is dead”, and that “you just
can’t improve on Adam Smith”. As in the 1950s, pragmatism had asserted its pre-
eminence over ideology in PNP government practice.

In summary, Democratic Socialism and the Market represent two contending principles
for the achievement of the “common good”. The first principle holds that intervention by
democratically elected governments is required in order to consciously subject the market
economy to the public interest. In this case the term “Democratic Socialism in the context
of the Market Economy” comes close to being a contradiction in terms. If one accepts
this principle, the two cannot be put on an equal footing with one another: the latter must
be subordinated to the former.

Alternatively, the second principle holds that the public interest is best served by the
freest possible operation of markets, with minimum government intervention. In this
case the term is close to superfluous. With a properly functioning market economy, there
is no need for Democratic Socialism.

Theoretically, the case for revolutionary socialism rested on the labour theory of value
and the inevitability of class struggle. However the case for Democratic Socialism, and
more specifically for public intervention, rests on the theory of “market failure” and on
the possibility and desirability of class co-operation. In formal terms, the market produces
an optimal allocation of resources in accordance with the preferences of consumers where
assets and incomes are equitably distributed and economic information is equitably
available. This breaks down where there are structural inequalities in the ownership of
assets including land, capital, and education, in the distribution of income, and in access
to information due to class and ethnic stratification. Such conditions establish a clear case
for public intervention in the market. This is typically the situation in Jamaica and in
other societies with the enduring legacy of plantation institutions, as shown convincingly
by the late Professor George Beckford.

From the 1950s development economists were in no doubt that systemic market failure
was characteristic of developing countries and of the functioning of international goods
and capital markets. A striking feature of the recent discussion on the global economic
crisis is the way in which prominent mainstream economists and businessmen are
speaking openly about market failure as the underlying source of volatility in global
financial markets, and about the case for government intervention in developing
economies. I am referring to the recent writings of the currency trading billionaire,
George Soros, and of the chief economist at the World Bank, Professor Joseph Stiglitz.

If the current global financial and economic crisis has achieved anything positive, it has
been to blow the mantra of globalisation out of the water. In their desperate struggle for
survival, a growing number of countries are not waiting for “received wisdom” to change
before they do what seems to them to be necessary and sensible. Malaysia has imposed
limits on currency and stock market trading. Hong Kong has banned trading by the
infamous Soros hedge funds on its local exchange. Korea and most of the East Asian
crisis economies, are seeking to deliberately reflate their domestic economies in defiance
of the IMF. Singapore and India are establishing barter trading arrangements to
circumvent dependence on currency fluctuations and availability. China, which had
liberalised the least, is establishing itself as the core of a Greater China economic zone
embracing Taiwan, Hong Kong, and Singapore. Russia, in deep economic and political
crisis, is seeking to end the domestic convertibility of the ruble, declare a moratorium on
its foreign debt, and move toward greater state control over the economy.

These measures do not yet make up a coherent package. Still less do they constitute a
coherent philosophy of economic management supported by elegant economic theory and
a “model” capable of gaining academic respectability. Mistakes have been made, and will
continue to be made. But what they almost certainly portend is the end of the era of
unquestioned acceptance of the ideology of globalisation and its underlying theoretical
apparatus of neo-liberalism. Far from being at the “end of history”, history is at a turning
point, though to what we do not yet know.

The issue then is not whether there should be public intervention but where, when, how,
by whom, and—most important of all—to what end. The objective of intervention might
be limited to that improving the efficiency with which the market operates, on the
assumption that a properly functioning market economy and society is the ultimate ideal.
But it might go beyond the idea of a market society to embrace the attainment of the
“good society”, embodying ethical principles such as equity, social justice, and ecological
sustainability. Socialism, whatever the variant, has always contained strong ethical
elements of this kind.

                           IV.     Summary and conclusions

Let us now summarise the main propositions advanced in this paper.

1. Successfully addressing Jamaica’s current problems requires a high degree of social
   consensus among the principal social partners: the political parties, business, labour,
   and civil society. The alternative to this may well be an escalating cycle of economic
   stagnation, social retrogression and social implosion, possibly leading to political

2. The achievement of sustained economic growth with equity and social justice, and on
   the desirability for co-operation among the social partners to this end, are objectives
   on which the entire society can agree.

3. There are sound economic as well as ethical reasons why conscious measures should
   be taken to ensure that social progress accompanies economic growth, rather than left
   to “trickle down” effects, or postponed until after a certain level of economic
   development has been achieved.

4. The specific elements of a social consensus on linking economic growth with equity
   and social justice can be listed under the rights and responsibilities of government, the
   private sector, labour, and civil society.

5. The social consensus approach implies a model of social management of the market
   economy. Hence it implies a departure from the pure laissez-faire or market economy.

6. While being consistent with the basic tenets of socialism, the social consensus
   approach does not correspond to the historically specific forms of Democratic
   Socialism (Social Democracy), or Marxist-Leninist Socialism (Communism).

7. The PNP’s socialism has historically been of the Social Democratic type. In the
   1970s, the Party flirted with more revolutionary socialist currents emanating from the
   Third World, but this was more rhetorical and perceptual than real.

8. In government, the PNP’s socialism has tended to be pragmatic rather than dogmatic.
   In the 1950s the Party embraced the theory of “industrialisation by invitation” and in

   the 1990s that of “growth through liberalisation”, theories that were sanctioned by the
   capitalist West to which the Jamaican economy is tied.

9. The spread of the current global financial and economic crisis has shaken to its
   foundations existing neo-liberal doctrine, represented by the discourse on

10. Both international and domestic developments therefore point to the necessity for
    social management of the market economy.

11. The model of social management of the economy by social consensus is consistent
    with the basic tenets of socialism and therefore with the principles of the PNP as a
    Democratic Socialist party.

12. For both substantive and tactical reasons, this model should not be termed “socialist”.
    The substantive reason is that it does not in fact correspond to either of the two main
    historical variants of socialism. The tactical reason is that the term socialism has been
    politically and socially divisive in Jamaica’s political culture. Thus use of the term
    might undermine the achievement of social consensus itself.

13. The PNP, as a Democratic Socialist party, can subscribe to such a model secure in the
    knowledge that it is consistent with its basic principles and objectives, while not
    seeking to have Democratic Socialism accepted as the dominant ideology for all

University of the West Indies, Mona
September 17, 1998


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